BOJ’s Kuroda rules out tapering, aims for inflation ‘overshoot’

MITSURU OBE

TOKYO — Bank of Japan Governor Haruhiko Kuroda began his second term on Monday by declaring he would continue the unprecedented run of monetary easing, even as the U.S. Federal Reserve steadily withdraws its own fiscal stimulus policy.

In a news conference held after he was formally reappointed for a second five-year term by Prime Minister Shinzo Abe, Kuroda said that “it is way too early” to discuss exiting the monetary easing campaign.

He emphasized that the central bank had pledged to keep expanding the country’s monetary base even after inflation hits 2%. “It is important to commit to an inflation overshoot,” the governor said at a press conference.

Kuroda, who is the first BOJ chief to serve two consecutive terms in 57 years, began his second term amid criticism that he has failed to keep the promise he made in 2013 to achieve 2% inflation in two years.
He is also facing complaints from the banking industry for introducing negative interest rates, a decision he made in 2016 that has led to a collapse in interest rates and has made it difficult for commercial banks to earn interest income from their lending
operations.

Kuroda said he was aware of the plight the commercial banks face. He said he would “keep a close watch on the effects of the prolonged monetary easing on the health of the banking system.” But he stood by his
easing measures and the elusive 2% target.

He argued that 2% inflation was a reasonable goal widely adopted by central banks around the world, and stressed that the target had helped bring much-needed stability to the nation’s foreign exchange rate.

On Monday, the Japanese yen was trading at about 107 to the U.S. dollar.

The governor’s efforts will likely face more challenges ahead. In the near term, the market is concerned about a flare-up of a trade war between the United States and China.

Next year, the nation’s sales tax rate will finally be raised to 10% from 8% after two postponements, potentially putting a damper on private consumption. In 2020, the economy is expected to cool after the nation
hosts the summer Olympics.

However, Kuroda played down such concerns. According to him, the sales tax increase of 2 percentage points should not produce as big a drag on the economy as it did in 2014, when the tax rate was increased by
3 percentage points to 8%. Consumer necessities, such as food, will also be exempted from the next tax increase, he noted.

He predicted that private-sector investment would pick up the slack in public-sector investment, which has been running high as preparations are made for the Olympics.

Earlier on Monday, Prime Minister Abe met with Kuroda and asked him to “mobilize all policy tools available” to lift the country out of its decades-long deflation. Kuroda responded by promising to “make maximum
efforts.”

Kuroda said that Abe made no specific policy requests during their meeting.